Friday, April 26, 2013

Regulators Eye Bank Payday Lending

The nation's lead bank regulators want banks to think twice before they get involved with payday lending. Supervisory "guidance" proposed this week by the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) would have examiners closely scrutinize banks offering deposit advance products.

Deposit advances look and act like payday loans: they're small-dollar, short-term loans made available to bank customers who receive recurring Direct Deposits. The products have been a point of contention with consumer groups and even regulators in the past because like payday loans deposit advances come with high-interest rates and unrealistic repayment schemes. The bank gets first dibs on any funds that come in via Direct Deposit so as to receive repayment of the deposit advance in one lump sum; that, in turn, leaves the borrower with insufficient funds to cover other expenses and little choice but to borrow again.

The Consumer Financial Protection Bureau has been looking into payday loans and deposit advances; it held a series of field hearings last year and this week it published a detailed white paper and initial data findings on payday lending and deposit advance loans. Reflecting the cycle of debt scenario opponents invoke, the CFPB said its research revealed the median deposit advance made by a bank was for $180, yet the average daily advance balance per borrower was $343.

Meanwhile, measures have been introduced by lawmakers in several states and localities that aim to either regulate or outright ban payday lenders.

In a press release announcing the proposed guidance, the OCC said it "encourages national banks and federal savings associations to respond to customers' short-term credit needs. However, deposit advance products can pose a variety of safety an soundness, compliance, consumer protection and other risks."

A press release from the FDIC expressed the same sentiments, but had this to add: "If structure properly, small-dollar loans can provide a safe and affordable means for borrowers to transition away from reliance on high-cost debit products. A number of banks are currently offering such reasonably6 priced small-dollar loans at reasonable terms to their customers. The FDIC encourages banks to continue to offer these products, consistent with safety and soundness and other supervisory considerations."

Consumer groups lauded the agency's proposal, but took a swipe at the Federal Reserve Board which has remained mum on the subject despite having regulatory authority over some banking companies that make these controversial loans.

The FDIC and OCC both said they are rescinding previous guidance on deposit advances by banks, and they gave interested parties 30 days to comment on their latest proposals.

Tuesday, April 2, 2013

Mobility Can Help Bank Underdserved, Sometimes

Mobile banking and payments are a growing part of the commercial landscape. Also a popular and cost-effective way to mainstream the financially underserved. Especially here in the U.S.

According to the Federal Reserve Board, 90% of underbanked Americans have mobile phones and 49% of those consumers had used mobile devices to conduct banking during the 12-months leading up to November 2012 that was up from 29% a year earlier. The Fed's report also reveals that about one in three unbanked Americans has a smartphone, which makes these individuals candidates for mobile financial services.

The Fed's data was contained in a report on mobile financial services released last week, the second such report out of the Fed in as many years.

That mobile phones can help mainstream the financially underserved is pretty much a no-brainer. What's fascinating, however, is how many different types of payments can be facilitated by mobile technologies.

Last month, while attending the Bank Administration Institute's Payments Connect conference I had an opportunity to witness a demonstration of one of the newest twists in mobile financial services: a mobile cash payment option called PayNearMe.

PayNearMe began as an online cash payment option; sellers render bar code receipts which buyers can then have scanned at thousands of payment locations (mostly 7-Eleven stores). Now it's being made available to brick and mortar merchants who can have bar-coded receipts sent to customers' mobiles. Greyhound bus lines was among the first to sign on. Several property management companies are using the service too, for rent collections, said Danny Shader, PayNearMe's CEO.

"Our passengers represent a wide cross-section of the public, but the one thing they have in common is their smart phones," said Dave Leach, Greyhound's President and CEO.

Some Women Remain Underserved
While mobile phones may be responsible for helping to mainstream the financially underserved in the U.S., that's not necessarily the case in other countries.

A new report from card company Visa and GSMA, an international association representing mobile companies, reveals that women in developing countries are a huge underserved market for mobile financial services. This despite the fact that women often handle household finances.

Daryl Collins, co-author of the report and a Director at the consultancy Bankable Frontier Associates,said the research shows that "low-income women undertake complex financial management for their households using a set of often substandard instruments."

Chris Locke, Managing Director at GSMA, said the research "clearly demonstrates that women play a critical role in the success of mobile financial services deployment."

Monday, April 1, 2013

Feds Want Tighter Money Laundering Rules for Prepaid Debit Cards

Prepaid card are a great stand-in for cash. Annual payroll card loads alone are expected to reach $68.9 billion by 2017, according to a new report from Aite Group. That’s more than twice the total loaded onto payroll cards last year ($34.1 billion, by Aite’s reckoning). 

Typically branded with a Visa or MasterCard logo, payroll cards are used as alternatives to cash payments for unbanked and underbanked workers. 

Payroll cards are just one 18 different types of reloadable prepaid debit cards identified by the consultancy Mercator Advisory Group which follows the prepaid card space. The Federal Reserve Bank of Atlanta estimates $202 billion will be loaded onto government benefits, payroll and other categories of prepaid cards this year, up from $28 billion in 2009.

That’s a lot of cash, and now the federal regulators want to be sure criminals aren’t using the cards to smuggle ill-gotten monies out of the country. 

According to an article appearing last week in The Hill, a daily covering Congress, the White House is now reviewing regulations developed by the Financial Crimes Enforcement Network (FinCEN) that would require travelers to inform U.S. Customs officials if they’re carrying prepaid cards with more than $10,000 in value.

Not surprisingly, the planned regs have drawn opposition from banks and prepaid card companies. Some have suggested they discriminate against the unbanked and underbanked.

The Network Branded Prepaid Card Association (NBPCA) said in a comment letter that the plan creates numerous problems; that a case can be made even that it violates state and federal financial privacy statutes.

“In addition,” NBPCA wrote, “prepaid access devices are not at all similar to currency, monetary or other bearer payment instruments and indeed are distinct as payments methods in that their use requires pre-authorization, similar to debit or credit cards.”

Some opponents have met with Administration officials, The Hill reports. But it’s unclear if that’s going to make a difference, as at least one Senate aide told the daily that getting the new regs in place is a to-do item for Democrats in that chamber.